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Stock Market Investing 101-A

I absolutely love making money in the stock market, this is the way smart money does it.

How "smart money" invests in the stock market - common sense investing will make you wealthy!

The stock market can be fickle, but it is a great way to build true wealth. There is nothing more enjoyable than having your money, make you money! Buying and selling stocks is not that complicated, the individual investor can open a trade account, and make multiple transactions for very little cost. So why not get started now, and enjoy watching your money grow?

Although there is inflation, which the subject of stock market corrections come into play, it's very difficult to predict when and if it will really occur. That is why a smart investor will use their sensibility and buy stocks that have potential, and will weather the storm well. But this has always been a paradox to the investor, and timing can play a part, but what I will demonstrate is still true, and why Warren Buffet has proven the best way to make money is in the stock market.

So that is the psychological part of investing. Getting beyond what the news, your friends, and your research will show you, that it is a fact there is potential for a loss. There are three stock market indices in the United States, which give you an overall view of the market. These are the S & P 500, the Dow Jones Industrial Average, and the Nasdaq Composite. The S & P is 500 large companies that have a diverse breadth of industry sectors, while the Dow Jones index is 30 large industrial stocks that measure the overall economy and are considered essential to the economy. The Nasdaq Composite is the technology stocks, which are perhaps more volatile, but have great potential to profitability.

Without getting into too much thinking that goes into buying a stock, one of the main indicators to look at, is the price to earnings ratio or P/E's. This way of valuing stock is to take the stock price and dividing it by the earnings. The higher the P/E ratio, the less attractive it is...most of the time. Because a company may be investing in equipment or something that takes a lot of capital such as a manufacturing plant, it will show a high price to the earnings it is currently making. Think this through carefully, as once the plant opens and production (output) is in motion, the profits will be rising and the stock price will be continuing to rise with it.

Focusing on the main goal of selecting a stock that increases in value (capital gains), other factors CONTRIBUTE to the price of a stock, which could be dividend payments, but these will always be reflected with the price of the stock. To get started, a stock chart is the beginning of the research for selecting a stock. You can easily find a company that you are familiar with, Google the company for the stock symbol or simply ask the question "company A stock price" to get a return and link to view the chart.

Being that a chart is a graphical representation that can be viewed by the minute, day, week, month, years, it gives you the history and TREND of the stock. Often, we hear about a great company and buy the stock, but looking at the chart may show a continual decline in stock price. While there are many ways to analyze a stock using the chart, the main focus should be a relevant view using the weekly, monthly, six month and year performance.

It's too granular to look at these by the day to make a decision about the stock, as well as by the hour, because a stock will fluctuate and throw you off the trail. Remember, we are buying stocks to make money, selecting these stocks by having true value, not just an overinflated hype that will most likely have you losing money in a short period of time. Also, drop the idea that you need the ultimate entry point, the rule goes - top pickers and bottom pickers become cotton pickers is a true statement! Although it is nice to get in right at the bottom, it seldom happens so don't try to get too clever, just buy the stock that feels right to you.

A good starting place is for the monthly chart, just to get an overview of current trending of the stock. The month view should be looked at as - considering all the events of the world, IE oil prices, Ukraine, inflation, etc. as to how these events are affecting the stock in question. If the trend is downward, and the rest of the stock market is in a downward trend - provided by the indices as presented in paragraph four, you can detect a weak stock by a higher percentage of decline than what the "average" stock is doing. If the stock market has been down for three weeks, but the stock you are looking at has been stable and not in decline, keep an eye on that one as it is showing strength!

Note that some stocks have a big run to the upside, then decline for a few weeks, then start the upward trend again. One method used by stock traders that rely on charts, is to see if the price of the stock doesn't accelerate past the previous high, as that means a stock is a good buy. They call that move as breaking the resistance to a higher price, while breaking below a previous low means that the support price has been broken, this stock most likely will continue downward. You can use the support/resistance levels for all charts from weekly, monthly, six months, one year to decide what the strength of the stock is.

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So far nothing new under the sun for stock trading, here is what gets you to buy a winner, versus a stock that doesn't increase in value. The basis for value investing doesn't start by researching a specific stock, it begins with - what is going on in the world. Once you take note of that, whether it is electric vehicles, high oil prices, airline travel after the pandemic, it is THEN that you start researching the stock for opportunities. This is big picture stuff, but will lead you to a profitable trading account using your own uniqueness to who you are and how you understand how the world works. Using this approach, you should be able to minimize risk and provide for increased capital in your account.

The example of world events is an interesting place to start, because it is totally relevant to how you should approach buying of stocks. A quick example of this would be the price of natural gas for heating your home. This fall many people received their heating bill for natural gas, that doubled in price from the previous year. As an investor, this is your cue to start thinking about the exploration, refinement, and transportation that affects the natural gas production.

You first want to understand the underlying cause for this, because if it was a fluke event such as Texas having the refinery shut down due to a winter storm, then this market is a hard one to chase. But if it is an overall trend such as a shortage of natural gas due to a long hard winter, this would be an area of stocks to consider. The background to this is that electricity used to be generated by the use of coal to power these plants, but they are switching over to natural gas due to the cleaner burning of the fuel to generate electricity. Included in this natural gas production, is that it is tied to the price of oil, but not always. These factors of weather, electricity production, and the price of a barrel oil have increased the price of many stocks associated with natural gas production.

Looking at the primary ways of natural gas production, research the companies that drill for natural gas. By doing a Google search, you can find an extensive list of companies that are in the business of drilling. Note that when you find these stocks, looking at the charts at this point, the price of the stock most likely has already gone up. Now is when it gets a little more difficult, but you still have opportunity if the trend is still in the positive direction. Try to Google - best stock picks for natural gas and look at them all. Usually you will find a few that are lagging, and those are the ones you want to start doing a little more research on...as they have the potential to increase and catch up to the rest of the complex.

Because of the ease to research these, you will find various recommendations to buy/hold/sell, check out the reasons why the recommendation. An old trick I have used, is to Google - best stocks to buy in 2021, and take a look at what the recommendations were and why, then view how the future worked out for these recommendations. Often you will find a series of stocks that have all the fundamental reasons to buy, and they haven't done much...these may be the "sleeper stocks" to buy!

Another example of a current event, that will get your thinking on track as to searching for a good stock to buy, is what is going on in the technology world. People have experiencing a cable bill that has been going up almost every other month, which leads them to changing from cable to a streaming service. Most cable company also provides the Internet service, which is reasonably priced now, but as cable companies lose the cable revenues, they are going to increase the price of Internet service to cover the loss in revenue. The game changer is - 5G cellular service. Fast Internet without a cable, a receiver and wireless router is reasonably priced, and this is where the consumer is going to go.

There are plenty of opportunities to buy stock's in the 5G business, by doing research, this industry will continue to grow, providing profitability, capital gains, and nice dividend income. Do some research on who the players are in the business of providing this service, you will be able to find some companies that are growing but undervalued, and these make great investments!

And that is how you need to think in the marketplace. Although the stock market can make a correction, the facts remain that consumers are going to heat their homes, natural gas production needs to be increased, the stock will rebound quickly. The same goes for wireless broadband, people are switching to streaming more and more, as they will also change from a cable provider to a wireless provider, the stock will retain it's value and increase as more and more users add this service.

By analyzing stocks in a big picture way, you will be able to take advantage of how the consumer affects the market. Everyone has an experience level that, if you are curious enough, you can find and take advantage of the increase in profitability in these companies, as well as profitability for yourself - happy fishing!

This content reflects the personal opinions of the author. It is accurate and true to the best of the author’s knowledge and should not be substituted for impartial fact or advice in legal, political, or personal matters.

© 2022 Mike Dempsey

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